K1 targets at least $6.25bn for its sixth flagship fund

Managers with new funds are in a difficult fundraising environment as many LPs are overallocated to private equity.

K1 Investment Management is seeking at least $6.25 billion for its sixth flagship fund, coming back to the market after closing its fifth offering in April 2021.

K1 is one of many managers currently fundraising in a difficult environment. Many LPs are overexposed to private equity while also enduring slowing distributions, which leaves them in a weaker position to make commitments.

Information about K1’s sixth fund was included in board documents for the Connecticut Retirement Plans and Trust Funds Investment Advisory Committee meeting held on March 8. Buyouts listened to the meeting via phone call.

The documents included a due diligence report from Connecticut’s investment staff and separate analysis from Hamilton Lane.

Connecticut made a $200 million commitment to the sixth fund, known as K6 Private Investors, at the meeting.

The sixth fund will focus on enterprise software companies with less than $100 million in recurring revenue and enterprise values between $100 million and $450 million, according to the due diligence report.

According to the report, K1 will charge a 2 percent management fee of aggregate commitments during the five-year investment period, stepping down to 2 percent of net invested capital afterwards. The fund will have a 20 percent carried interest rate after an 8 percent preferred return.

The fund uses an American-style distribution waterfall model, the report said.

K1 will commit 10 percent to the fund, according to the report.

Hamilton Lane said K1 expects to invest between $15 million and $250 million per equity check across 28 to 35 investments in the sixth fund. Among those investments, K1 aims to complete 18 to 20 buyout deals and 10 to 15 smaller, minority deals.

According to Hamilton Lane, the fund term will last for 10 years, with a one-year extension at the discretion of K1 with additional extensions granted by advisory board approval.

According to the report, K1 has made 21 deals through its fifth fund. K1’s fifth fund raised over $4 billion as of April 2021.

K1 expects to make five exits of current investments in early 2023, according to Hamilton Lane.

Connecticut’s report lists K1’s history of cross-fund investments as a possible risk. According to the report, K1 cross-invested in four portfolio companies in its second and third funds.

Hamilton Lane said the first close for the fund is targeted for June 16.

K1 did not respond to inquiries seeking comment by press time.